Notes & Bonds Payable Flashcards
1
Q
In a Troubled Debt Restructuring (TDR) how is a note treated in terms of figuring out Gain or Loss by the Creditor?
A
In a TDR, the “Creditor” reduces the amount that is currently owed ($954,000, the face value of $900,000 plus one year of Accrued Interest or $54,000) down to the Present Value of the Future Cash Flows. According to the Authoritative Literature(AL), this Present Value is determined using the Same Rate as the Original Note Receivable. In this case, that is 6% which gives a Present Value of $480,000. Reducing the receivable from $954,000 to $480,000 causes the bank to recognize a $474,000 Loss.
